Question

The Warren Watch Company sells watches for $23, fixed costs are $180,000, and variable costs are $10 per watch.

1. What is the firm's gain or loss at sales of 9,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   
   
   What is the firm's gain or loss at sales of 19,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   
2. 
   
3. What is the break-even point (unit sales)? Round your answer to the nearest whole number.
4. 
   
5. What would happen to the break-even point if the selling price was raised to $32?
   a.The result is that the break-even point remains unchanged. b.The result is that the break-even point is lower. c.The result is that the break-even point is higher. Item 4
6. 
   
7. What would happen to the break-even point if the selling price was raised to $32 but variable costs rose to $22 a unit? Round your answer to the nearest whole number.
   a.The result is that the break-even point remains unchanged. b.The result is that the break-even point increases. c.The result is that the break-even point decreases.

Answer 1

	Given,
	Sale price of watch	$23
	Variable cost	$10
	Fixed cost	$180,000
a)	Calculation of profit/loss at 9000 watches
		$	Workings
	Sales	207000	9000*23
	Less: Variable cost	90000	9000*10
	Less: Fixed cost	180000	Given
	Profit	-63000
	Therefore, there is loss of $63000
b)	Calculation of profit/loss at 19000 watches
		$	Workings
	Sales	437000	19000*23
	Less: Variable cost	190000	19000*10
	Less: Fixed cost	180000	Given
	Profit	67000
	Therefore, there is profit of $67000
c)	Breakeven point (units)= Fixed cost/(Sale price-variable cost)
		180000/(23-10)
		13846.15
	Breakeven point= 13847 (because if we round it off at 13846 there would be loss)
d)	If the sale price is raised to $32
	Breakeven point (units)= Fixed cost/(Sale price-variable cost)
		180000/(32-10)
		8182	units
	Therefore, the breakeven has reduced
	Answer: Option B
e)	If the sale price is raised to $32and variable cost to $22
	Breakeven point (units)= Fixed cost/(Sale price-variable cost)
		180000/(32-22)
		18000	units
	Therefore, the breakeven has increased
	Answer: Option B